June 10, 2008

Taxation

Very Unintended Consequences of Michigan's Tax Hikes

Monique Chartier

Ed Achorn points out today that the tax hikes on income and gross business receipts passed by Michigan's Governor and legislature have backfired in a couple of ways.

In a state already battered by the decline of the auto industry, the tax hike left Michigan with an unemployment rate of 6.9 percent, high above the national average of 5 percent. (Rhode Island’s rate is 6.1 percent.) Meanwhile, large numbers of those who can afford to flee are leaving, and the state’s housing prices are declining at the fourth-fastest rate in America. Locals call it “the Detroitification of Michigan.”

Furious taxpayers have gathered enough petition signatures to force a recall election on House Speaker Andy Dillon, one of the chief advocates of the tax hike.

That does not seem a very promising model for Rhode Island to copy.

Achorn correctly points out the step - the first of many needed - that RI House Speaker William Murphy had orchestrated away from Michigan's model and the absurd reaction that it evoked.

He pushed through a reform that would bring Rhode Island’s income taxes on a slow glide path toward parity with the Bay State’s. He won national attention with the move, which helped advertise the Ocean State as trying to get its house in order.

This — an attempt to gradually become competitive with Massachusetts, never mind the country or the world — is what the public-employee unions are denouncing as an outrageous giveaway to the rich.

[Reference/Reminder: Justin's post and handy graphic.]

As we await release of the House Finance Committee's budget tomorrow, Achorn reminds us of the pitfalls of backsliding towards Michigan.

It would be comforting to subscribe to the childlike faith that taxing “the rich” would take care of everything. But, in the real world — as Michigan and Rhode Island have amply demonstrated — it does not work. People will invest their money in other states. They have access to these things called moving vans. They can pack up and leave.
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Last December or January the ProJo ran a story on RI and Michigan being the only two states losing total population (and given the influx of illegals and anchor babies into RI, it means that we're losing "legal" population big time)!

That story spawned an online survey asking people if the had left or were planning to leave Rhode Island (don't know if it's still available at the ProJo site).

The comments people left - hundreds and hundreds of them - were almost universal in their negativity concerning Rhode Island's corruption; taxes (especially property taxes); bad schools and lack of job opportunities.

OTOH, those who had moved (primarily to the South) were almost universal in how much better life was elsewhere: better weather, lower taxes, lower housing costs, greater job opportunities. Most said they'd never consider coming back to Rhode Island, except to visit.

So now Rhode Island joins NY in being "a nice place to visit, but I wouldn't want to live there."

Only with RI, it's former residents saying it!!!

Posted by: Ragin' Rhode Islander at June 10, 2008 11:22 PM

"It would be comforting to subscribe to the childlike faith that taxing “the rich” would take care of everything. But, in the real world — as Michigan and Rhode Island have amply demonstrated — it does not work. People will invest their money in other states. They have access to these things called moving vans. They can pack up and leave."

That quote should be required as a disclaimer on every post at RI Future.

Posted by: Mike at June 11, 2008 8:14 AM

Great post.

I live on the border with MA and I never buy anything in RI. Why should I? It's cheaper in MA, whether it's gas tax or sales tax. I've long said that RI would make a lot more money by even matching MA's 5% sales tax. Or even better, attract people from the other states by going to 4%. But what our legislations does is the opposite, charging an *extra* 1% on meals. Laffer curve anyone?

>>Furious taxpayers have gathered enough petition signatures to force a recall election on House Speaker Andy Dillon... That does not seem a very promising model for Rhode Island to copy.
<<

Hmm, that sounds like a GREAT mode for RI to copy. Down with Murphy!!


People in Michigan may be able to load up the moving vans and invest in other states, as can we, but due to the size of RI, we can actually still live here and invest in other states. Heck, even with the way gas prices are, if you need some big box item costing a few hundred bucks, it's well worth it to drive up to Nashua, NH and pay ZERO sales tax, instead of our 7%.

Posted by: PJL at June 11, 2008 8:19 AM

That which you tax, you destroy.

That which you subsidize, you enhance.

It's Economics 101.

Not all former Rhode Islanders move South, but most do. I moved to Idaho, and I love it. Idaho blows away RI in every way imaginable.

I agree: I would only return to RI to visit.

Posted by: Citizen Critic at June 11, 2008 8:57 AM

if you need some big box item costing a few hundred bucks, it's well worth it to drive up to Nashua, NH and pay ZERO sales tax, instead of our 7%.
XXXX
Absolutely. Talk radio should promote this. "Working RI" meet "Screw RI". LOL.

Posted by: Mike at June 11, 2008 11:53 AM